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Tata Capital > Blog > Personal Use Loan > What is a Personal Loan Deferment? And How does it Work?

Personal Use Loan

What is a Personal Loan Deferment? And How does it Work?

What is a Personal Loan Deferment? And How does it Work?

Has the unpredictability of life made it challenging for you to pay off your personal loan EMIs? Do not be discouraged! Overwhelming as it may seem, there are other options to help you deal with such a situation. So, instead of defaulting on your payments, ask your lender for a personal loan deferment.

What is personal loan deferment?

To answer “What is loan deferment” in a nutshell, deferment is defined as the action of putting something off to a later time. In the context of personal finance, a deferment is a pre-agreed, temporary break from making loan repayments.

Loan deferments are typically reserved for people going through some sort of financial hardship, for instance, medical emergency, national emergency, loss of a job, etc. To get a loan deferment, you need to speak to your lender and clearly explain your situation.

How Does Personal Loan EMI Deferment Work

Suppose your lender agrees to offer a deferment on your personal loan or credit. Following this, the EMI you needed to pay in October 2021 will be paid in November 2021.

Further, if a lender agrees to offer deferment, it is critical to understand their specifications or rules to do so. For example, you need to know exactly when your loan deferment officially starts and when it ends.

Lenders usually offer deferments in one-month intervals, but the time period may be extended. Say, your next payment is due on November 1st, and your deferment starts from November 2nd; you will still need to make a payment for the month of November.

Again, suppose you find yourself unable to make an EMI payment even at the end of your pre-approved deferment period. In that case, you need to contact your lender once again, requesting for another deferment. If your lender offers personal finance deferment in one-month intervals, this needs to be done every month until you are able to pay off your loan EMI. However, do remember that most lenders will have a limit to the number of deferments that they allow.

Does loan deferment affect your credit score?

If the lender has approved a loan deferment, then your credit score will remain unaffected. Normally, lenders need to report to credit bureaus whether your loan EMIs have been paid on time, paid late, or defaulted. Normally, paying late or defaulting on loan repayments will harm your credit report. However, the same should not be the case due to deferment, as the lender will simply report it as a ‘loan deferment’.

Also, read – How much CIBIL Score Required for Personal Loan

Eligibility Criteria for Personal Loan Deferment

Understanding personal loan deferment eligibility is crucial for borrowers seeking temporary relief. To determine who can get loan deferment, individuals must contact their lender and enquire about the specific criteria and documentation required. Lenders usually ask for valid proof of financial hardship. Borrowers may be considered eligible if they are experiencing any of the following situations:

  • Job loss or significantly reduced income
  • Medical emergency involving themselves or a family member
  • Widespread crisis, such as a pandemic like Covid-19
  • National emergency, including war or severe political disruption
  • Natural or man-made disasters affecting income stability

Also, read – What Are Personal Loan Foreclosure Charges?

Pros and Cons of Personal Loan Deferment

After understanding “how does loan deferment work” through the above sections, let’s evaluate the loan deferment pros and cons. They are listed here:

Advantages of loan deferment are:

  • Short-term financial relief and protection from missed payment penalties. 
  • It can help stabilise your budget during periods of temporary hardship and prevent immediate damage to your credit score. 
  • Borrowers may also redirect funds towards essential living or medical expenses.

Disadvantages of loan deferment are: 

  • Interest generally continues to accumulate, which increases the total amount payable. 
  • The repayment period may extend, resulting in a longer financial commitment. 
  • In some cases, monthly instalments after deferment may rise. 

Alternatives to Personal Loan Deferment

Before choosing deferment, one must consider the alternatives to loan deferment that might be more cost-effective. 

  • Renegotiating interest rates or extending the repayment term can reduce monthly instalments without pausing payments. 
  • Debt consolidation may simplify multiple loans and potentially lower interest rates. 
  • Another option is switching to interest-only payments temporarily, which keeps the account active and avoids capital build-up. 
  • Exploring personal loan repayment options can also include early partial repayments when possible, refinancing with a different lender, or using emergency savings to minimise interest growth. 

However, it is in your best interest to seek advice from a financial adviser to determine which approach best suits your situation and long-term financial goals.

Also, read – Understanding Cooling-off Period in Personal Loan

Key Things to Keep in Mind Before Opting for Loan Deferment

Before choosing deferment, consider essential loan deferment considerations to avoid unexpected financial strain. Important points include:

  • Interest generally continues to accrue during the deferment period
  • Total repayment amount may increase significantly
  • Lender-specific terms, timelines, and documentation requirements vary
  • Impact on credit reports may differ across lenders
  • Repayments might resume with higher instalments afterwards

Being aware of important loan deferment facts helps ensure the decision genuinely supports long-term financial stability.

Also, read – Understanding Maximum & Minimum Tenure for Personal Loan

Parting Thoughts

Before you opt for personal finance, be sure to check your repayment capacity using a personal loan EMI calculator and plan your loan in advance.

Looking for a reputed lender? Avail personal finance with Tata Capital. We offer finance at attractive personal loan interest rates, customisable repayment terms along with speedy processing.

With us, you can avail personal finance up to Rs. 25 lakhs. So, what are you waiting for? Check your personal loan eligibility with us and fund your needs today!

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FAQs

Does personal loan EMI deferment affect my credit score?

Personal loan EMI deferment usually does not damage your credit score if it is officially approved by the lender, as missed payments are not reported as defaults. However, it may be visible as a relief measure on your credit report, which future lenders might interpret cautiously when assessing your financial reliability.

How does interest accrue during a loan deferment period?

 

During personal loan EMI deferment, interest typically continues to accumulate on the outstanding balance. This interest is added to the principal once payments resume, increasing the total repayment amount. Although you are not making instalments during the pause, the loan cost becomes higher due to ongoing interest calculation.

What are the main reasons a lender might approve a personal loan deferment?

 

Lenders generally approve deferment when borrowers face legitimate financial hardship. Common reasons include job loss or reduced income, medical emergencies, natural or man-made disasters, national crises, or pandemic-related disruptions such as Covid-19. Proper documentation is required to demonstrate temporary inability to make payments.

What are the pros and cons of opting for personal loan deferment?

 

The main advantages include temporary financial relief, avoiding default, and protecting your credit score. However, disadvantages include continued interest accrual, increased total repayment cost, and potentially higher instalments later. Understanding these pros and cons is crucial before choosing deferment as it affects long-term financial planning.

Are there any alternatives to personal loan deferment if I'm struggling to pay?

 

Yes, several alternatives can provide support. These include extending the loan tenure, renegotiating interest rates, switching temporarily to interest-only payments, consolidating debt, refinancing with a lower rate, or seeking financial counselling. Exploring these options may reduce pressure without increasing overall loan cost significantly.

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